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The Shifts In Lead‐Lag Properties Of The U.S. Business Cycle

Author

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  • Joshua Brault
  • Hashmat Khan

Abstract

We document shifts in the lead‐lag properties of the U.S. business cycle since the mid‐1980s. Specifically, (1) the well‐known inverted leading indicator property of real interest rates has completely vanished; (2) labor productivity switched from positively leading to negatively lagging output and labor inputs over the cycle; and (3) the unemployment rate shifted from lagging productivity negatively to leading positively. Many contemporary business cycle models produce counterfactual cross‐correlations revealing that popular frictions and shocks provide an incomplete account of business cycle comovement. Determining the underlying sources of these shifts in the lead‐lag properties and their consequences for macroeconomic forecasts is therefore a promising direction for future research. (JEL E24, E32, E43)

Suggested Citation

  • Joshua Brault & Hashmat Khan, 2020. "The Shifts In Lead‐Lag Properties Of The U.S. Business Cycle," Economic Inquiry, Western Economic Association International, vol. 58(1), pages 319-334, January.
    • Handle: RePEc:bla:ecinqu:v:58:y:2020:i:1:p:319-334
    DOI: 10.1111/ecin.12841
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    Cited by:

    1. Guido Ascari & Qazi Haque & Leandro M. Magnusson & Sophocles Mavroeidis, 2024. "Empirical evidence on the Euler equation for investment in the US," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(4), pages 543-563, June.
    2. Elena Deryugina & Alexey Ponomarenko, 2021. "Explaining the lead–lag pattern in the money–inflation relationship: a microsimulation approach," Journal of Evolutionary Economics, Springer, vol. 31(4), pages 1113-1128, September.
    3. Mitra, Aruni, 2024. "The productivity puzzle and the decline of unions," Journal of Economic Dynamics and Control, Elsevier, vol. 159(C).
    4. Jordi Galí & Thijs van Rens, 2021. "The Vanishing Procyclicality of Labour Productivity [Why have business cycle fluctuations become less volatile?]," The Economic Journal, Royal Economic Society, vol. 131(633), pages 302-326.
    5. Hashmat Khan & Jean-François Rouillard & Santosh Upadhayaya, 2019. "Consumer Confidence and Household Investment," Carleton Economic Papers 19-06, Carleton University, Department of Economics, revised 04 Jan 2024.
    6. Dionysios Chionis & Fotios Mitropoulos & Antonios Sarantidis, 2021. "Business cycles and macroeconomic asymmetries: New evidence from Eurozone and European countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5977-5996, October.
    7. Brault, Joshua & Khan, Hashmat, 2024. "Large firms and the cyclicality of US labour productivity," Journal of Macroeconomics, Elsevier, vol. 82(C).

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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